Customer-Obsession, Powered by the Internet & AI as Enablers: The Bazos Narrative
Customer-Obsession, Powered by the Internet & AI as Enablers: The Bazos Narrative
Invent on the customer's behalf
One of my favorite interviews that I go back to from time to time is this one with Jeff Bazos:
This interview provides a good glimpse into Bazos’s initial thought process regarding obessing about customer experience, which is the foundation of Amazon and was used to grow the company and build its brand.
In this post, we will explore how Bazos's ideas in this interview manifested in practice, from attracting top-tier talent to navigating emerging markets, building a vast network of distribution centers to venturing into new markets by leveraging technology to solve customer problems and obsessing about customer experience as a mission.
Interview Picks
Here are some of my picks from the interview.
[Interviewer] You have a lot of employees and alot of distribution center space:
[Bazos] "Scale is important in this business. And you need scale also to offer the lowest prices and the best customer service to people
Distribution center space → Allows us to get products close to customers → We can ship it to customers in a timely way → Which improves customer service (Obsessive attention to customer experience E2E).
We will do it as rapidly as we can
[Interviewer] That’s a very cost-effective proposition
[Bazos] “Not compared to opening an equivalent network of retail stores”
Bazos thought about how much one can save per sqft compared to a retail store sqft at a highly crowded area.
“You can’t compare retail stores to half a dozen distribution centers, it’s bad math”
[Interviewer] you are making a huge gamble here by opening distribution stores.
[Bazos] we have a terribly complicated business
We are growing historically very rapidly, expanding geographies, we have whole new business models (e.g., auctions),…
Scale is important to us, but it also makes execution harder, so we find folks in Seattle to make sure we service customers.
[Interviewer] “It does matter to your investors to know whether they're investing in a company that is a pure internet play”
[Bazos] "Internet Shminternet... What matters to me is do we provide the best customer service."
[Interviewer] But it does matter to your investors to know if they are investing in a company that uses the internet.
[Bazos] In the long term there is never a misalignment between customer interest and shareholder interest.
They should be investing in a company that obsesses over customer experience.
[Bazos] There is never any misalignment between customer and shareholder interests." This conviction in the power of customer-centricity became a guiding principle for Amazon, ultimately driving its phenomenal growth and shareholder value.
[Interviewer] You know nothing about books…
[Bazos] Yes, at the beginning, but we go out and hire the best industry experts in all of those categories (Key to success)
Books, music, toy/electronics,…
“We take this very seriously, we take the commitment to the customer very seriously. We are about to release or announce something to the customer before it’s ready.”
Amazon’s Customer-Centric Approach
Even in its early stages (1999), Bazos recognized that great customer service required more than just an online presence. He highlights the important role of physical infrastructure, distribution centers, inventory, and employees in delivering a superior customer experience.
For example, He saw distribution centers around the country as a way to get products close to customers so that they can ship in a timely manner, improving customer service.
“Distribution center space and half a dozen distribution centers around the country it allows us to get product close to customers so that we can ship it to customers in a very timely way which improves customer service levels. That's what we're about.”
Bazos was obsessed with customer experience. The Internet is an implementation detail. He viewed it as a tool to provide the best customer service and enable a use case, not as the core product.
“It does not matter to me if we are a pure internet play, what matters to me is that we provide the best customer services”
Bezos' core belief is that long-term success is built on customer loyalty, not chasing fleeting trends. He viewed trends as enablers when they made sense.
He was also confident in Amazon's strategy, emphasizing the importance of scale and execution to deliver the best customer experience. He invested in distribution centers to realize economies of scale and eventually reduce the price per unit to deliver the best customer service at a low cost.
“I believe that if you can focus obsessively enough on customer experience, selection, ease of use, low prices, and more information to make purchase decisions with, you can give customers all that plus great customer service. I think you have a good chance. And that's what we're trying to do."
Customer Obsession with AI as an Enabler
Bazos viewed customer obsession as proactive rather than reactive, serving customers' latent needs (they don’t yet know they have them). He believed in inventing on behalf of the customer, seeing potential problems, and devising the best ways to solve them through innovation before the customer stumps on them.
Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples. ~ Jeff Bezos' 2016 Letter to Amazon Shareholders
Like the Internet, Amazon used technology, especially AI and machine learning, to enable many use cases. From Bazos shareholder letters, here are a few instances where AI/ML was mentioned:
From the 2010 Letter
16 years after Amazon was founded, Bezos wanted to inform shareholders about Amazon's investments in technology and how these investments are driving long-term value creation. He reiterates Amazon's core principle of customer obsession, highlighting how technology is a crucial tool for understanding and meeting customer needs. He emphasizes that investments in technology ultimately enhance the customer experience and that his commitment to technological innovation is not just a pursuit of trends but a strategic imperative driven by their core value of customer obsession.
"Rulebased systems can be used successfully, but they can be hard to maintain and can become brittle over time. In many cases, advanced machine learning techniques provide more accurate classification and can self-heal to adapt to changing conditions."
In 2010, he understood the limits of rule-based systems and highlighted how AI/ML is used to improve customer experiences in the following instances:
To improve search relevance and product ranking, Amazon used Random Forests, a machine learning method that combines multiple decision trees to incorporate thousands of product attributes for more accurate results.
To detect spam or perform sentiment analysis, Amazon used Naive Bayesian Estimators, a probabilistic model that classifies data based on the assumption of feature independence.
To optimize search result rankings and build topic models, Amazon’s search engine uses machine learning algorithms that analyze data and identify customer interests through data mining.
To categorize and filter products during customer searches, Amazon used Information Extraction Algorithms to extract key entities from unstructured product descriptions for better categorization.
Full letter here: 2010 Letter to Shareholders
From the 2016 Letter
In the 2016 shareholder letter, Bazos again highlights using artificial intelligence (deep learning in this case) and machine learning to enhance customer experiences and drive long-term value. He emphasizes how these technologies are not just trends but strategic imperatives aligned with Amazon's core value of customer obsession.
Here are some of the use-cases he highlights where AI and machine learning are employed to improve Amazon's operations and customer experience from the letter:
To improve merchandising placements and reduce fraud, Amazon leverages machine learning models that continuously learn from data, adapting to changing conditions to maintain accuracy and effectiveness in these critical areas.
To power autonomous systems like Prime Air drones and Amazon Go stores, Amazon utilizes computer vision and AI to create seamless, innovative experiences that redefine customer convenience.
"Some of this work is highly visible: our autonomous Prime Air delivery drones; the Amazon Go convenience store that uses machine vision to eliminate checkout lines; and Alexa, our cloud-based AI assistant."
To streamline natural language processing in Alexa (AI customer assistant), Amazon employs deep learning techniques through services like Amazon Lex, which simplifies the integration of sophisticated AI capabilities into various applications.
“Amazon Lex (what’s inside Alexa), Amazon Polly, and Amazon Rekognition remove the heavy lifting from natural language understanding, speech generation, and image analysis. They can be accessed with simple API calls – no machine learning expertise required.”
Full link to the letter: 2016 Letter to Shareholders
Bezos saw a deep connection between AI and customer obsession. Like the Internet, he believed that AI is a fundamental tool for understanding and serving customers, not the core outcome, which was key to achieving long-term success in the "Day 1" philosophy.
AI as a tool for customer obsession:
Anticipating customer needs: He believes AI, particularly machine learning, helps identify what customers don't know to ask for, driving innovations like Amazon Web Services (AWS) and products like the Echo.
Personalization and convenience: AI allows for tailoring the customer experience. He described how Amazon uses machine learning for product recommendations, search ranking, fraud detection, and other behind-the-scenes optimizations to improve core operations and personalize the experience.
Example Manifestations in Amazon’s products and services:
Amazon Go: Bezos saw Amazon Go, a cashier-less store leveraging computer vision and AI, as a prime example of reinventing the customer experience by eliminating a major pain point: checkout lines.
Amazon Prime: Bezos highlights the success of Prime, driven by customer-centric decisions like free shipping and personalized recommendations, as a foundation for continuous innovation and improvement, often fueled by AI.
The Customer Obsession Framework
Here is a framework to work with to be in parity with Bezos’s mindset.
Customer Obessesion as a Guiding Principle:
Prioritize the customer’s needs and problems above all else.
Focus on providing the best possible customer experience, even if it means going beyond their stated needs (the latent ones).
The Key Components:
Technology as an Enabler: View technology (internet, AI, etc.) as tools to enhance the customer experience, not as the core product. Use technology strategically to solve customer problems and deliver innovative solutions.
Focus on Execution: Discovery and finding the right problems to is only but a small piece of the equation. Execution is king. Make sure to build the necessary infrastructure/foundation (in Bazos’s case it was distribution centers, and expert teams) to execute your customer-centric vision effectively. Scale gradually to improve customer service and deliver value.
Long-term Vision: Invest in building customer loyalty and trust. Find the right balance between long-term value creation and short-term gains (low-hanging fruits). Understand that customer satisfaction leads to shareholder value if you shape it this way.
Proactive Problem-Solving: Anticipate customer needs and address potential pain points before they arise. Continuously innovate to exceed customer expectations.
Conclusion
Whether it’s the Internet or AI, Bazos viewed them as tools and means to ends to better customer experience. For more information on AI market dynamics and an understanding of where AI is an enabler vs. the product, check this post.
Customers ideally trust the vendor to understand the problem and advise. The advice can be from an existing solution space, but that also leaves room for “above and beyond” discovery when it can be afforded. I.e., identifying the best solution to the problem even if it does not exist. Sometimes, even solving for a future/latent problem, which is in Bazos’s Day 1 mindset, is what he considered true customer obsession.
That’s it! If you want to collaborate, co-write, or chat, reach out via subscriber chat or simply on LinkedIn. I look forward to hearing from you!
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